News  SENDAI announced that it secured two new contracts worth RM246m in Saudi Arabia.

 The first contract worth RM203m (expected completion: October 2016) is awarded by the Saudi Arabian’s main contractor namely BACS JV. The job scope involved construction of the East, North & South Depots of the Riyadh Metro project - Package 1 (Lines 1 and 2).

 Meanwhile, the second contract which is worth RM43m is the connection design, supply, fabrication, erection of structural steel and complete envelope cladding works of roofing and walling for a conversion hangar in Riyadh.

Comments  POSITIVE on the job flows as including these jobs, SENDAI has secured RM864m, making up 57.6% of our full-year new contracts assumption of RM1.5b. With this pace of job flows, we would not be surprised if SENDAI beat our full-year new jobs assumption.

 More to come? According to management, total project value of the Riyadh Metro project is worth USD22.5b (appx: RM83.3b). This is only the first package that SENDAI clinched and with the strong quality and strong track record, we would not be surprised if they win more structural steel-related packages in the project.

 Assuming ~5% PATAMI margin (in line with our assumption), this job will contribute RM8.2m to SENDAI’s PATAMI in FY15-FY16E.

Outlook  We estimate by now, SENDAI’s outstanding orderbook stands at RM2.0b from RM1.4b in end- 2014. Bulk of the orderbook came from the Middle Eastern region. The orderbook will last for the next two years.

 As for jobs prospects, currently SENDAI has ~RM11.0b tenderbook which mostly are from the Middle Eastern Region.

 Above all, we like the fact that the group is turning around by showing massive improvement in earnings via margins expansion as well as superior orderbook growth.

Forecast  Unchanged.

Rating  Maintain OUTPERFORM

Valuation  SENDAI went up by 18.1% reaching our initial target price of RM0.81 since our recent upgrade on 6th March 2015.

 We are now raising further our TP to RM0.90 from RM0.81 as we ascribe higher valuation of FY15E 11.0x (10% premium of small-cap peers’ PER) from 10.0x previously. The higher valuation is premised on the pace of its new contract wins that came in faster than expected (58% in less than 3 months) as this could mean that SENDAI may deliver higher than our expectation of RM1.5b new orderbook.

Risks to Our Call  Lower-than-expected margins

 Lower-than-expected orderbook progress

 Lower-than-expected new contracts

 Forex fluctuation risks 

Source: Kenanga